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The current shifts against StreamCast

Morpheus_logoA federal judge in Los Angeles broke new legal ground today, and his decision could bury StreamCast Networks. Applying the new standard laid out by the Supreme Court in MGM v Grokster, U.S. District Judge Stephen V. Wilson held that StreamCast was liable for music and movie piracy committed by people using the company's software, including the Morpheus file-sharing program. Under the Grokster standard, a company that actively promotes piracy or bases its business on it can be held liable for its customers' copyright infringements. The standard isn't terribly clear, however, because the ruling laid out a series of factors to consider on both sides of the issue.

All the same, Wilson's ruling wasn't much of a surprise. StreamCast had been one of three main defendants in the Grokster lawsuit, and the other two -- Grokster and Sharman Networks, distributor of the Kazaa file-sharing software -- had already agreed to pay multi-million-dollar settlements to the record companies, music publishers and movie studios in the wake of the Supremes' ruling. So had the companies behind several other leading file-sharing networks, including Bearshare and eDonkey, who weren't targeted by the Grokster lawsuit. StreamCast had tried for months to settle, too, only to have the talks collapse.

Wilson cited numerous statements internal e-mails by current and former StreamCast executives that showed their awareness of users' infringements, their eagerness to insure the supply of copyrighted content on the network, their implementation of features that made it easier to infringe, and their rejection of technology that could have deterred some infringements but also driven away users. "StreamCast's promotional efforts, internal communications, advertising designs and actual advertisements constitute clear expressions of unlawful intent," he wrote, and later added, "Evidence of StreamCast's objective of promoting infringement is overwhelming."

This condemnation, remember, comes from a jurist who ruled in 2003 that StreamCast had *not* violated copyright law because its software was protected by the Supreme Court's 1984 ruling in the Sony Betamax case. Like the manufacturer of a VCR, Wilson reasoned, StreamCast could not monitor or control its users' infringements. His ruling was upheld by the 9th Circuit before the Supreme Court unanimously disagreed and sent the case back to Wilson for reconsideration in light of the new inducement standard.

The StreamCast ruling adds a degree of clarity for other file-sharing companies (most notably LimeWire, the biggest player still in the record companies' cross-hairs), who now have a concrete example of what it means to induce infringement. More significant, though, may be Wilson's denial of StreamCast's request for more time to prove that the entertainment companies misused their copyrights. Every file-sharing company sued by the entertainment industry has offered a similar defense, which goes something like this: the labels and studios abused their copyrights in an attempt to control the market for downloadable music, and consequently are barred by law from collecting damages for any infringements. They base their claims on the fact that the labels and studios have created joint ventures to sell their songs and movies online, but they refuse to offer file-sharing companies the licenses they need to do the same. Wilson wrote that a misuse defense is applicable only when companies extend their copyrights "into ideas or expressions over which they have no legal monopoly." Their copyrights give them a legal monopoly over the reproduction and distribution of their artists' songs, Wilson noted. If the labels and studios colluded to deny licenses to StreamCast, that might violate antitrust law, but it wouldn't be a misuse of their copyrights.

Wilson's reasoning may help the entertainment industry in the long run, but they may not make much difference on the major labels' next legal battle. LimeWire's counterclaims, which are being heard in federal court in New York, are largely based on federal anti-trust statutes and New York state business-practices laws, not copyright law.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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